Can I claim Private Residence Relief when selling a property?
Private Residence Relief (PRR) is a generous tax saving. If the conditions are satisfied - it allows you to sell your only (or main) home without having to pay Capital Gains Tax (CGT).
The pandemic has resulted in many of us reassessing where we want to live and work - and we are seeing an increase in the value of residential property in the UK.
If you are thinking of selling your residential property -this is a good time to assess your eligibility for Private Residence Relief before you sell.
The PRR legislation is complex and unexpected tax bills can arise for the unwary. We’ve seen instances where PRR is not available in full - here are just a few examples:
- If the garden/grounds your property sits in exceeds 1.236acres or (0.5hectares) - PRR will only be available if the additional area is required to enjoy your home. A judgement call will need to be made, valuations obtained and cost apportioned to decipher how much PRR can be claimed when the property is sold.
- If you’ve fenced off some of your garden hoping to sell it for development, HMRC will try and argue that this is not required to enjoy your home and you may have to pay CGT on the part of the garden you’ve fenced off, when you sell your home.
- If you sell and move out of your home but keep part of the garden with a view to selling it for development at a later date, PRR will not be available when the plot is sold because you no longer own your home.
However, if you keep the garden with a view to building a new home on it for yourself, it may attract PRR when you eventually sell, providing you are able to occupy the new home within two years. If it takes longer than that, you will only be eligible for PRR when you occupy the property.
- If, during your ownership, you have moved out to travel, been required to live elsewhere as a result of work or more recently lived elsewhere to care for family members and have not been able to re-occupy your home, as your home prior to its sale, PRR could be restricted.
- If your home has been used for more than occasional business use, PRR will be restricted. Have you adapted part of your home to be used solely to operate your business from and/or have you taken in lodgers and income from renting rooms exceeds £7,500 per annum?
- If you own a second home and have spent equal amounts of time between the two, HMRC may determine which is your main residence thus eligible for PRR based on fact, unless a PRR election has been made.
A successful PRR claim relies on there being quality family occupation over time. So if you buy a property, renovate it in a short period of time and then sell it before doing the same thing all over again, expect HMRC to argue that you are trading and try to charge ‘Income Tax’ on ‘profits’ realised at a maximum rate of 45%!
In recent years, we’ve seen HMRC challenged PRR claims. If you have a large garden, have not continually occupied your property as your home throughout your entire period of ownership, or use part of it for a dedicated business purpose, we will help you determine how much PRR you can claim and calculate the likely amount of CGT payable, prior to its sale.
Don’t forget that residential property gains need reporting and CGT paid to HMRC within 30 days of completion!
Call Sarah Tucker or Nicola Valentine on 01223 810100 for a range of property tax advice.